Item 1 · The product
How funeral insurance works
Funeral insurance is a form of life insurance. Premiums are paid fortnightly or monthly, and when the person it covers dies an agreed amount is paid towards the funeral. Moneysmart, ASIC’s consumer website, describes it as buying insurance against a future cost rather than putting money aside, and says people can usually choose cover of somewhere between $5,000 and $15,000.
Not financial or legal advice, and this guide does not arrange insurance. For the official consumer guide, see Moneysmart’s funeral insurance page; for a problem an insurer has not fixed, see the Australian Financial Complaints Authority (AFCA).
A policy, item by item
Every policy has its own documents: the product disclosure statement (PDS) and, once it is issued, the papers that confirm the cover. The drawing below is a specimen with nothing filled in. Each numbered line is something those documents set out, explained underneath.
1 and 2: who owns it, and who is covered
In the Life Code’s terms, the policy owner is whoever owns the policy, and the life insured is the person the policy insures, who need not be a party to it. The industry’s Life Insurance Code of Practice defines a funeral policy as one taken out mainly to cover funeral, burial or cremation costs for the life insured or their family members. ASIC found that most of these products need the applicant to be at least 18, though children can be added to a policy, and that close to 60% of the policies it reviewed covered one person.
3: the benefit amount
This is the amount the policy pays. ASIC found the amount usually rises by itself each year, either with the consumer price index or by a fixed amount such as 5%, and that people can sometimes choose to stop those increases. What that does to the premium is covered in Item 2.
4: a lump sum, or expenses only
Some cover pays a set sum. Other cover repays funeral costs up to a limit, once they are shown to have been paid; Moneysmart calls it expenses-only cover. Moneysmart warns against expenses-only cover: the family may have to produce receipts before anything is paid, it says, and such cover offers less legal protection and carries many exclusions.
Until 1 April 2020, funeral expenses policies were not treated as financial products under the Corporations Act. Since that date, ASIC says, a business providing a funeral expenses facility generally needs an Australian financial services licence. The difference between the two kinds of cover is not a technicality. A Federal Court case brought by ASIC turned on it, as Item 4 explains.
5: the premium
ASIC found the premium generally depends on the insured person’s age, sometimes their gender, and the size of the benefit, and that it usually goes up as the person gets older. Item 2 takes this line by itself.
6: the accident-only period
Many policies limit what they pay in the first 12 to 24 months, usually to deaths caused by an accident. Moneysmart notes that a death from a terminal illness in the first few years may not be covered. ASIC counted 1,809 cases in the 2014 financial year where the insurer handed back the premiums instead of paying a benefit, because the death was from natural causes inside that early period.
7: exclusions and health questions
Funeral policies usually accept applicants without health or medical checks. ASIC linked that easy acceptance, and the lack of full underwriting, to the fairly high cost of cover compared with the small sums insured. An exclusion for pre-existing medical conditions is one of the things the Life Code says a subscribing insurer will explain in plain language before you buy.
8: cooling-off and cancelling
ASIC listed it as a common feature that premiums are not refunded when someone stops paying or cancels. Moneysmart puts it simply: stop paying and you will probably lose what you have paid. The cooling-off period, and what happens later, are in Item 5.
What a subscribing insurer says it will explain
The Life Insurance Code of Practice is the life insurance industry’s own code. The version in effect from 1 March 2025 lists what an insurer bound by it will explain in plain language when it offers a funeral policy. Paraphrased, in the Code’s order:
- that the policy is insurance and not a savings plan, and what that means
- the benefits the policy holder is entitled to
- how the beneficiaries can claim those benefits after the policy holder’s death
- any exclusions for pre-existing medical conditions, and how they work
- any period when the policy pays only for an accidental death
- that the policy can be cancelled at any time, and what follows a cancellation after the cooling-off period, including whether premiums are refunded
- level and stepped premiums, with an illustration of how stepped premiums might rise
- that the total premiums could come to more than the benefit, where that is possible
- what happens if the premiums stop
A list like this works best read against a real PDS, line by line, before anything is signed.
When the time comes to claim
Moneysmart notes that the payout can take a while to reach the family. Under the Life Code, within 10 business days of receiving a claim the insurer will explain the cover, any waiting periods, the benefits that apply and how the claims process works. If a claim goes wrong, Item 6 sets out where it can go.
Other ways people pay ahead
Moneysmart lists other ways to plan for funeral costs: saving in a bank account, a funeral bond, a prepaid funeral plan, and superannuation. Bonds and prepaid plans are different products with different rules. ASIC notes, for one, that a prepaid funeral agreement between a person and a funeral provider is not a financial product at all. Moneysmart’s page on paying for your funeral sets the options side by side.